Drawdown in Crude Oil | RJO Futures

by Tarik Husseini

June 6, 2017 9:13AM CDT

This morning’s EIA report showed another significant drawdown in crude oil supplies at 6.4 million barrels. Globex July crude oil futures (GCLN17) ran up about $.70 a barrel, up to $49.15 on the news. Frankly, that isn’t an impressive move to the upside on a big drawdown. Perhaps it is muted because of recent bearish news that Libya has ramped up production to 3 year highs, and OPEC compliance numbers are slipping. We have also seen a steady increase in the US rig count over the past 6 months. The US is already on par with the biggest producers in the world. The extension of the production cuts that OPEC announced last week seems to be losing the desired effect. There are reports that Saudi Arabia is looking to possibly deepen the cuts at the next meeting. This will be a tough sell to the other members.

These crosscurrents of fundamentals are clearly illustrated in the technicals over the last year. Crude has been hemmed in a $10 range since last June. That is a remarkable feat for one of the more volatile contracts over the past decade. I don’t see an end in sight until there is a major paradigm shift in the supply equation, or a major geopolitical event. Thus, it makes sense to keep trading the range of $45-$55 with protection in place at the edges of the range in the event of market surprise. There is great opportunity in range trades as long as the trader stays nimble. This means trading on a shorter time frame, with profit target and risk clearly delineated before the trade is initiated. Once a breakout occurs, one can shift to a momentum and trending trade in the direction of the breakout.

After earning a degree in political science and philosophy at Loyola University, Tarik put his education to work by taking a job as a runner on the floor of the Chicago Board of Trade. His initial exposure to futures began in the grain room, where he ran orders from the order desk to the brokers in the pit. Surviving the dog eat dog world of the pits he then went to the phones as a clerk, interacting with clients on a daily basis. Within the year he was hired at Shatkin, Arbor, Karlov as an arb clerk in the bond room. There he thrived on the fast pace and pressure filled environment of the floor and was rapidly promoted to Bond desk manager for SAK, staying in that role from 1996-2003. He became a member of the CBOT in 2000 and was a member for more than 5 years, honing his skills while working with some of the most successful traders in the business. Tarik has traded independently as well as proprietorially since 2000: focusing on treasury bonds, metals, grains and crude oil. He also has experience with various option strategies on the buy, as well as the sell side. Tarik does his utmost to represent his clients with the knowledge and experience that he has built.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.